258 N.W. 921 | Iowa | 1935
The fundamental fact situation in all these claims is fully and fairly set out in the opinion filed in the Riling claim. It is enough for the consideration of the questions we have before us to say that, prior to the 1st of June, 1931, there existed in the city of Davenport two banking institutions, one known as the American Commercial Savings Bank, the other as the Citizens Trust Savings Bank, with a third corporation known as the American Trust Company. These corporations may be referred to in further paragraphs of this opinion as the Commercial Bank, the Citizens Bank, and the American Trust Company. Negotiations were instituted between the Commercial Bank and the Citizens Bank for a merger and consolidation, resulting in a contract between the two said banks, the material part of which is set out in the Riling opinion, and the Commercial Bank took over all the assets of the Citizens Bank about that date, and paid for the same with new stock issued by the buying corporation to the stockholders in the Citizens Bank.
Of these ten claimants with whom this opinion deals, two of them (Claim No. 642, Jennie C. Frank, and Claim No. 640, Philomene G. Walsh, Guardian) were ordinary depositors in the Citizens Bank; the other eight claimants held certificates of deposit in the Citizens Bank at the time the same was taken over by the Commercial Bank.
Some of the questions raised and argued by the appellants herein are fully disposed of in the Riling opinion, and will be given no further attention here.
[1] Another point raised by the appellants is that the Commercial Bank having taken over all the assets of the Citizens Bank, the creditors of the Citizens Bank are entitled, in equity, to have any assets of the Citizens Bank, which still remain in the hands of the receiver of the Commercial Bank (under its changed name), sequestered and applied to the payment of these claims. *1061
It is shown by the record that when the plaintiff, Andrew, as receiver, took possession of the assets of the Commercial Bank, there passed into his hands many assets which formerly belonged to the Citizens Bank, in an amount in excess of these claims. The appellants insist, therefore, that they have a right to have the property, or the proceeds thereof, which formerly belonged to the Citizens Bank and is now in the hands of the plaintiff, used for the payment of these claims.
We will not stop here to discuss the question of whether or not what was done by these corporations amounted to a consolidation or a merger. It is our opinion that, so far as the questions involved herein are concerned, there is no difference.
The first time we had this question up for consideration was in the case of Warfield v. Marshall County Canning Co.,
We next considered this question in the case of Luedecke v. Des Moines Cabinet Co.,
"* * * That, where one corporation transfers all its assets to another corporation, and thus practically ceases to exist without having paid its debts, the purchasing corporation takes the property subject to an equitable lien or charge in favor of the creditors of the selling corporation, and this without reference to the question of actual fraud."
We there announced several rules which must be applicable in this case, referring to State Trust Co. v. Turner,
"Equity regards the property of a corporation as held in trust for the payment of the debts of the corporation, and recognizes the right of creditors to pursue it into whosoever's possession it may be transferred, unless it has passed into the hands of a bona fide purchaser."
We said:
"We do not recognize the trust-fund doctrine to the extent that it has obtained in some of the courts; but are of opinion that corporate creditors are entitled in equity to the payment of their debts before any distribution of corporate property is made among the stockholders, and recognize the right of a creditor of a corporation to follow its assets or property into the hands of anyone who is not a good-faith holder in the ordinary course ofbusiness." (Italics ours.)
We then held that the acceptance of stock in the undertaking company, as payment for the assets and stocks of the cabinet company, did not make the first-named a bona fide holder; second, we held that, under the circumstances related, the undertaking company was not a bona fide purchaser for value in the usual course of business; and, third, that the creditor was not bound to follow the stock issued by the buying corporation; and concluded by saying:
"We * * * have come to the conclusion that, while there is no personal liability on the part of the undertaking company as successor in interest to the plaintiff, yet it holds the property *1063 received from the cabinet company subject to the payment of plaintiff's claim, and that the trial court was right in establishing a lien against it and ordering a sale on special execution."
In Farnsworth v. Muscatine P. P.I. Co.,
"The holding of the court in that case is that a general creditor has not such a lien upon the property of the corporation that he can pursue it in the hands of a bona fide purchaser for a full consideration in cash, or its equivalent; that the true rule is that, where the property passes to one who is not a good faith purchaser in the ordinary course of business, a creditor has an equitable right to a lien, which will be enforced by a court of equity, in his favor, against the property in the hands of a purchaser not protected under what is called the modified rule. The holding is that the creditors of a corporation in aproper case have an equitable right or lien upon the assets of a corporation, and may pursue this right and have an equitable lien established against the property in the hands of one who is not a good faith purchaser. The rule is recognized that, where one corporation transfers all its assets to another, not in the ordinary course of business, the very circumstances of the case imply full knowledge, on the part of the transferee of all the facts necessary to charge the property in the hands of the purchaser with the debts of the seller; and this is especially true where the purchasing corporation is a product of the ingenuity of the stockholders of the old corporation, who took the property with full knowledge of the right of the plaintiff and transferred it to the new body of their own creation."
In that case the property was bought in at a receiver's sale and a new company organized, and we held:
"* * * that this defendant was not a bona fide purchaser of the property in controversy in the ordinary course of business, and plaintiff is entitled to have an equitable lien, under the facts *1064 disclosed in this case, impressed upon the property in its hands for the payment of her judgment."
The case in many respects is similar in principle to the case at bar.
In the case of Gibson v. American Ry. Express Co.,
In the case of German American State Bank v. Farmers
Merchants Savings Bank,
"The doctrine which treats the assets of a corporation as a trust fund for the payment of its creditors has been adopted in this state. [Citing the Luedecke, Farnsworth, and the Marshall County Canning Co. cases.] Nevertheless, corporate assets may be sold and transferred to a purchaser in good faith for full value for cash or its equivalent. Such is the holding of the above-cited cases."
It will be noticed that this statement is not quite accurate in saying that we have adopted the trust fund doctrine, but it still sustains the right of recovery under the given circumstances.
In Hoyt v. Hampe,
"The creditors have (except as against bona fide purchasers) an equitable right in the assets, in the nature of an equitable lien."
It is suggested that we have deflected somewhat from this rule in the case of Garvey v. Bankers Trust Co.,
"The records of the savings bank showed that the account of the plaintiff had been withdrawn some months previously and the account was balanced and closed."
There was no string whatever attached to the use of the $100,000 by the transferring bank.
We think these features distinguish the Garvey case from the other cases heretofore cited.
In the case of Erhard v. Boone State Bank, 65 F.2d 48, 59, the Circuit Court of Appeals for this district had before it practically the same question we have in the case at bar. There is an elaborate review of our cases in an opinion written by Judge Kenyon, together with some cases from foreign jurisdictions, and the opinion closes with this statement:
"We are satisfied that under the entire record appellees took the assets of the Farmers Bank [the selling bank] subject to an equity of Genevieve Erhard [the creditor] therein, and that a decree should have been entered as prayed by plaintiff impressing the assets of the Farmers Bank in the hands of the Boone Bank and in the hands of the trustees with such equitable lien as to give to the plaintiff as executor a right to share pro rata with other creditors of the Farmers Bank in these assets."
To one interested in this question, much light is shed on it by the following authorities: Central Imp. Co. v. Cambria Steel Co. (C.C.A.) 201 F. 811, loc. cit. 821; Silver King Coalition Mines Co. v. Silver King Consol. Mining Co. (C.C.A.) 204 F. 166, loc. cit. 175, Ann. Cas. 1918B, 571; First Trust Co. v. Crooked Creek R. Coal Co. (D.C.) 243 F. 450, loc. cit. 458; Okmulgee Window Glass Co. v. Frink (C.C.A.) 260 F. 159, loc. cit. 162; Cobb v. Interstate Mortg. Corp. (C.C.A.) 20 F.2d 786, loc. cit. 789; Guardian Trust Co. v. Kansas City Southern R. Co. (C.C.A.) 28 F.2d 233; Hurd v. New York Commercial Steam Laundry Co.,
In most, if not all, of these cases, our case of Luedecke v. Des Moines Cabinet Co.,
We have studied this record with care and find that as to these three claims there was no novation established, and, therefore, these claims are ruled by what has been heretofore said as to the other claims in the case.
We conclude, therefore, that the claimants herein have an equitable lien upon all the assets in the hands of this receiver that were received by the buying bank from the Citizens Bank, and that they are entitled to share pro rata in said assets or the proceeds thereof. The district court erred, therefore, in refusing these claimants this equitable right. — Reversed.
All Justices concur, except DONEGAN, J., who took no part.